Best Small Business Line Of Credit Options For Good & Bad Credit
What is a business line of credit and how does it work?
A business line of credit gives a business owner a fixed amount that they can borrow. However, unlike a personal loan, this form of funding allows borrowers to only take out and pay interest on the cash that they need.
How to start a business line of credit
To start a business line of credit, you should have strong annual revenue and an established personal and business financial history. Some lenders, such as traditional banks, may require you to visit a branch in-person, while others may not require more than a quick, online application or a telephone call.
Is a business line of credit a good idea?
Due to the flexibility in loan amounts, a business line of credit can be a more cost-effective method of financing than a personal or business term loan.
What are the requirements to get a business line of credit?
While most lenders will require a high annual revenue, multiple years in business and a strong credit score, it’s also possible for newer businesses or owners with poor credit to obtain a line of credit. Before applying, you should have the documents pertaining to your personal and business financial history on hand.
What to consider before choosing a business line of credit
Minimum Requirements
All lenders will have a minimum set of requirements to be considered for their products. Some of the most common requirements include a minimum annual income, a minimum number of years in business, and a firm credit score.
Credit Line Details
The most important things to consider when determining if you want to accept a credit line agreement or not are the monthly limit on the line of credit as well as the interest rate, repayment terms, and any extra perks or rewards that the lender might offer. Keep in mind that when you’re searching for the line of credit that’s right for you, it’s important to find the line with the lowest annual percentage rate and most flexible repayment terms that fit your budget.
Application Process
These days, potential borrowers can apply for a line of credit within just a few minutes and without speaking to a real person. As long as you have the proper documentation, the application process can take as little as 10 minutes.
Repayment Terms
In most cases, you want to find the line of credit with the longest repayment terms. Most lines of credit will offer terms between a few months and three years.
Implications on Credit
Does a business line of credit affect credit score?
Just like repaying a term loan or personal credit card, repaying a business line of credit on time can have a positive effect on your credit score. Your score can also be negatively impacted if you make late payments.
What is the interest rate on a business line of credit?
When you take out a business line of credit, you’ll repay the full amount of what you used along with an extra fee, otherwise known as the interest. This is the extra fee that you pay to have the funds made available to you ahead of time.
How can I get a business line of credit with bad credit?
Even if you have bad credit, it still might be possible to get a business line of credit. To reduce the risk of not being repaid, many lenders will require what’s known as collateral, or some of your personal assets that can be seized in case you default on the loan. Other lenders may also allow you to apply with a co-owner of your business who has more established credit or financial history.
What is the difference between a business loan and a line of credit?
While a business loan is issued to you in one lump sum, you’ll only take funds from a line of credit as you need them. With this method of financing, you’re able to only pay the interest on what you used.
When to Use a Loan vs Line of Credit
Because loans are given in one lump sum, they’re best for one-time expenses such as large equipment purchases, property expansion or emergency repairs. A line of credit is better for managing recurring expenses such as payroll or regular supply purchases.
Qualifications, Fees, & Payments for a Business Line of Credit
How do I qualify for a business line of credit?
Most lenders will require applicants to have at least a few years in business and an established business and personal credit history. However, some will still work with borrowers with low credit. If you’re a potential borrower without a firm credit history, some companies may allow you to offer collateral or a personal guarantee in case you default on the payments.
What Fees You Will Pay for a Business Line of Credit
You will likely pay an origination fee as well as the interest rate on a line of credit. In addition, there may be late payment fees, prepayment fees or fees for not meeting the monthly minimum usage on a line.
Business Line of Credit Pros:
- Money is readily available
- Credit line replenishes whenever balance is paid
- Interest rates are only incurred when line of credit is used
Business Line of Credit Cons:
- Credit cards should be used for small daily purchases, as lines of credit typically aren't liquid
- Lines of credit are usually smaller than term loans
- Some interest rates are variable and fluctuate with the economy
Business line of credit: Summary of options
Up to $100k Business Lines of Credit
If you’re looking for a smaller line of credit, you might want to consider some of these lenders:
FundBox
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| Loan Amounts | $1,000 to $100,000 |
| APR Range | 10.1% to 79.8% |
| Repayment Terms | 3 to 6 months |
| Time to Funding | A few minutes to several days |
| Click “Check Rates” to apply to FundBox | |
» MORE: FundBox Business Loan Review
Fundbox offers lines of credit ranging between $1,000 and $100,000 to borrowers across a range of credit scores, annual incomes, and business histories.
Why choose Fundbox for Business Lines of Credit: Fundbox offers some of the lowest rates in the industry, with APRs starting at just 10.1%. This lender also takes a holistic approach to its application evaluation process by looking at more factors than just a borrower’s credit report. It also allows borrowers to make prepayments without any extra fees.
Pros:
- Funds in as little as one business day
- Minimal required annual income
- Friendly to new businesses
- Quick, online application
- No minimum credit score
Cons:
- 24-week maximum repayment term
- Weekly repayments can be large due to short loan terms
StreetShares
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|
| Loan Amounts | $2,000 to $250,000 |
| APR Range | 24.00% to 99.00%% |
| Repayment Terms | Up to 3 years |
| Time to Funding | Typically 1 - 5 days |
| Click “Check Rates” to apply to StreetShares | |
» MORE: StreetShares Business Loan Review
StreetShares offers lines of credit ranging between $2,000 and $250,000 to applicants with good credit scores and at least one year in business.
Why choose StreetShares for Business Lines of Credit: StreetShares is a great option for young businesses that are still expanding and building their financial histories. This lender offers reasonable annual percentage rates with longer and more flexible repayment terms than many of its competitors.
Pros:
- Up to three years to repay the line of credit
- Good for young businesses
Cons:
- Weekly repayments
- Difficult for borrowers with credit scores below 620 to qualify
- 3.95%-4.95% origination fee
OnDeck
 |
|
| Loan Amounts | $5,000 - $100,000 |
| APR Range | 11 % - 63% |
| Repayment Terms | Repaid Weekly |
| Time to Funding | As fast as 1 day |
| Click “Check Rates” to apply to OnDeck | |
» MORE: OnDeck Business Loan Review
OnDeck offers lines of credit between $5,000 and $100,000 to businesses that are at least a year old and have at least $100,000 in gross annual revenues.
Why choose OnDeck for Business Lines of Credit: With a line of credit from OnDeck, borrowers will repay the amount within a shorter period of time than with most other lenders. This company also reports to the major business credit bureaus, so can be a good option if you’re looking to build your business’ credit.
Pros:
- Easy for new businesses to qualify
- Quick to fund
- Easy application process
Cons:
- Potentially high interest rates
- Short repayment periods
Fundation
Fundation offers business lines of credit up to $50,000 to businesses with at least two years in operation and $100,000 in annual revenue.
Why choose Fundation for Business Lines of Credit: Fundation’s product is a hybrid of a traditional term loan and business line of credit, and can be a great option due to their maximum annual percentage rates which are capped at 15%.
Pros:
- Low APR
- Quick to fund
Cons:
- $500 application fee
- Low limit, with a maximum of $50,000
- Difficult to qualify if your credit score is below 660
» MORE: Fundation Business Loan Review
Business Lines of Credit $100,000 and Over
Kabbage
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| Loan Amounts | $2,000 to $250,000 |
| APR Range | 24% to 99% |
| Repayment Terms | 6 to 12 months |
| Time to Funding | A few minutes to several days |
| Click “Check Rates” to apply to Kabbage | |
» MORE: Kabbage Business Loan Review
Kabbage offers lines of credit of up to $250,000 to borrowers with annual revenues over $50,000.
Why choose Kabbage for Business Lines of Credit: Kabbage loans fund within just a few business days and are ideal for borrowers who have larger financial needs.
Pros:
- High maximum amounts
- Quick to fund
- Easy application
- Borrowing fee as low as 1.5%
Cons:
- Short repayment terms
- Possibility for APR as high as 99%
BlueVine
 Line Of Credit |
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| Loan Amounts | $5,000 to $250,000 |
| APR Range | 15% to 78% |
| Repayment Terms | 6 or 12 months |
| Time to Funding | As fast as 24 hours |
| Click “Check Rates” to apply to Blue Vine | |
» MORE: BlueVine Business Loan Review
BlueVine offers business lines of credit of up to $250,000 to borrowers with personal credit scores as low as 600.
Why choose BlueVine for Business Lines of Credit: BlueVine offers some of the fastest funding rates in the industry, with business lines of credit that can fund in as little as 12 hours.
Pros:
- Low minimum personal credit score
- Quick to fund
- Easy application
Cons:
- Short repayment terms, with a maximum of 12 months
- APRs as high as 78%
What To Do After Business Line of Credit is Established
What should I do once my business line of credit becomes active?
Because the primary perk of this form of financing is the flexibility to only use the cash that you need, remember that you don’t have to spend everything up to your credit limit just because it’s available. Make sure that whatever you spend is in line with your budget, and that you’ll be able to pay it within the allotted repayment terms.
How do small businesses build credit?
You can build your small business’ credit by only borrowing what you can afford and making timely payments on your lines of credit.
How do I increase my business line of credit?
Once you have established a more extensive credit history, you’ll be able to access larger lines of credit. In addition, many lenders reward repeat customers and may give you a larger line once you have made several timely payments.
Can you use a business line of credit for personal use?
While it is possible to use a business line of credit for personal use, this might not be a good idea. It’s important to keep personal and business lives separately in order to maintain your business budget.
Can I use a personal line of credit for business?
You can use a personal line of credit for business. However, a business line of credit may have more perks and can be tax-deductible.
Business Line of Credit Alternatives
Business credit cards vs Business Line of Credit
Because lines of credit usually have higher limits than business credit cards, lines of credit are more ideal for larger, recurring expenses while credit cards are better for paying for smaller costs.
Conclusion
Business lines of credit can provide a more flexible financing option than traditional business loans can and can help fund large and recurring expenses. A credit line can also be helpful to young businesses that are looking to establish their credit histories. However, depending on the lender, this form of funding can be more expensive than others. Make sure to apply to multiple lenders before deciding on the type of funding that’s right for your business.
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